Accounting for the Alignment of Interest and Commitment in Interfirm Transactional Relationships
29 Pages Posted: 20 Dec 2004
Date Written: 17 2004, 11
Control in interfirm transactional relationships has, inter alia, the purpose of mitigating potential opportunistic behaviour. For an individual actor the power-base to exercise control over the (output of) the behaviour of another actor in the relationship is a contractual arrangement. From a contractual perspective control systems are designed, thus providing contractual instruments to align interests and to prevent future opportunistic behaviour from occurring. Transaction cost economics proves to be a powerful tool for designing these instruments, which from this theoretical perspective are based on &apos'credible commitments&apos' and &apos'credible exit threats&apos'. The paper argues that the design and potential use of these instruments are efficient in the presence of the legitimate mistrust for which they have to compensate. However, given fundamental uncertainty, these designs do not suffice in attenuating opportunism and have to be complemented by trust building. Drawing on insights from cognitive social psychology and sociology, the paper clarifies that in self-regulating processes of rational interaction guided by a principle of enlightened self-interest, trust is built via mutual relational signalling. Partners voluntarily and deliberately signal to each other that they are trustworthy. The paper argues and gives evidence that instrumental control system design embedded in an institutional environment and atmosphere is a necessary flank for a trust building process to work properly. The (interrelated) roles of accounting in a contractual realm as well as in self-regulating processes of relational signalling are examined.
Keywords: accounting, control, trust, instrumental design, relational signalling
JEL Classification: M, M41
Suggested Citation: Suggested Citation